value and opportunity

2022 overview

2022 was a in absolute terms pretty bad, in relative terms however very lucky. The Value & Opportunity portfolio lost  -3,9 % (including dividends, no taxes, AOC fund as of 30.09.) against -16,7% for the Benchmark (Eurostoxx50(25%), Eurostoxx small 200 (25%), DAX (30%), MDAX (20%), all performance indices including Dividends).

Links to previous Performance reviews can be found on the Performance Page of the blog. Some other funds that I follow have performed as follows in 2020:

Partners Fund TGV: -33,6% (30.12.) 
Profitlich/Schmidlin: -19,2% (30.12.)
Squad European Convictions -14,1% (30.12.)
Ennismore European Smaller Cos (30.12.) +3,8% (in EUR)
Frankfurter Aktienfonds für Stiftungen (30.12.) -17,3%
Greiff Special Situation (30.12.) -3,5%
Squad Aguja Special Situation (30.12.) -19,2%
Paladin One (30.12.) -19,1%

Most of the “Long only funds” in the peer Group were clustered together near the benchmark in a tight range of -14% to -19%. The only positive peer was Ennismore, which is a long/short funds.

TGV Partners, which is part of the portfolio, was the weakest fund this year after being the best funds last year. In any case, a one year performance is only a snapshot, much more important are long term track records.

Over the 12 years from 12/31/2010 to 12/31/2022, the portfolio gained +336% against +120% for the Benchmark (Eurostoxx50(25%), Eurostoxx small 200 (25%), DAX (30%), MDAX (20%), all performance indices including Dividends).. In CAGR numbers this translates into 13,1% p.a. for the portfolio vs. 6,8% p.a. for the Benchmark. As a graph this looks as follows:

Current portfolio / Portfolio transactions

New positions:

In 2022, portfolio activity was quite busy as already mentioned in the 23 Investments for 2023 post. New positions were: Nabaltec, Solar, DCC, Royal Unibrew, Gaztransport, ABO Wind, Rockwool, Sto SE and Recticel.

In and out in 2022 went 7C Solarparken, Energiekontor, PNE Wind, Belimo, Steico, Va-q-tec, Kingspan, Exmar and 3U Holdings. With the exception of Exmar and 3U (special situations), the others were part of “basket trades” that by nature are more short term oriented.

Sold positions

In 2022, I sold ABB, Euronext, NKT, Nexans, FBD, Richemont, Washtec, Zur Rose, Naked Wines, Play Magnus and Aker Horizons. The current portfolio per 31.12.2022 can be seen as always on the portfolio page. 

Some Portfolio statistics

The weighted holding period as of 31.12.2022 has been 3,7 years and is within my target of 3-5 years. The 10 largest positions account for around 56% (53%) of the portfolio, the largest 20 for around 87% (82%).

Allocation by country (ex Funds):

Country	In % of Portfolio
FR	21,6%
DE	17,1%
SW	12.4%
DK	10,4%
UK	5,6%
IE	4,6%
CA	4,4%
NO	3,8%
SE	1,2%

Allocation by currency(ex funds):

Currency	In % of Portfolio
EUR	39.2%
CHF	12,4%
DKK	10,4%
GBP	10,2
CAD	4,4%
NOK	3.8%
SEK	1,3%
	%

From a country / currency perspective, this is clearly a European portfolio, within Europe it looks relatively diversified.

“Active share” vs “do nothing”

The “Do nothing” approach, i.e. just letting the Portfolio run from 31.12.2021 and collect dividends would have only resulted in a performance of -10,6%, so my “active contribution” in 2022 was again quite good.

The main reason for this were were new or temporary positions such as Exmar, Gaztransport and especially the “Freedom Energy” basket which added around 200-300 bps. Also an early exit from Zur Rose and Washtec explain part of the difference. This is now the second year in a row where the “active share” was very significant.

So at least for me, being active in my portfolio seems to add value that offsets the tax impact I have at a personal level compared to “do nothing”. However I don’t expect thtis to continue to such an extent.

Monthly Performance 2022

As in the past, the relative outperformance was mostly made in months when the Benchmark did not do well. The portfolio looks less volatile as the benchmark. Part of this is the average cash allocation of around 10%, but also a timelag between the more liquid benchmarks and the generally less liquid stocks that I own.

For instance both, in August and December, it took some time until my portfolio positions reacted on the good previous month in the indices.

Annual returns

The relative outperformance in 2022 was unsustainably high and a combination of a couple of lucky factors that I will discuss in the next paraghraphs. 2022 was the third negative year for both, the Benchmark as well as the portfolio. Interestingly, 2022 was the worst year since 2011 for the benchmark but only the 3rd worst for the portfolio.

Mistakes made in 2022

The biggest mistakes in 2022 was clearly to not sell or reduce Naked Wines earlier as outlined in a seperate “post mortem” post. Another mistake was not to follow upon my 2021 Performance review idea:

The only idea that I am contemplating is to buy “very far out of the money puts” on the “nothing will ever go wrong” stocks like Google, Microsoft or Apple. Because something might go wrong at some point in time.

What went well in 2022

As in 2021, I was able to add a couple of “decent companies at decent prices” that I can hopefully own for a couple of years, such as Nabaltec, Abo Wind, Royal Unibrew, Solar and DCC.

In addition, I was able to identify two very interesting special situations with Exmar and 3U. However, especially with regard to Exmar, I was very lucky with timing. Also the “Freedom Energy” baset worked well. Here I was lucky to have looked already at renewables before, so I could pull the trigger quickly.

Finally, I managed to remain more patient when a stock goes up, for example with Meier&Tobler, where I managed to hold on for a much longer time then I would have a couple of years ago.

What I have learned in 2022

My way of stock picking results in a portfolio that can do relatively well in most environments, but if fundamentals change, it really makes sense to look at these positions one by one and “weed out” those positions that really might suffer. As mentioned, I added a more structured half year review that I plan to do as well in 2023.

Both, with Zur Rose and Naked Wines I also learned that with more speculative stocks, it doesn’t pay off to wait for a turn around.

Outlook & Strategy 2023

If I look through my annual performance reviews, the outlook and strategy is almost always the same: Stay Cautiously optimistic and continue to do what I have been doing and try to improve gradually.

For 2023 I think it is important not to fall into the trap to think that some “Tech fallen Angels” are cheap because they have fallen by -80% or more. If history (Dot.com) is any guide, many of these business will not survive in their current form. For those few who will turn out to be decent or even great businesses, it could take a long time until their share prices will recover.

Interestingly, a lot of today’s “growth investors” have never experienced a longer period of time where even very good stocks have been undervalued for some time. There still seems to be a lot of FOMO in the market and everyone is looking for the big 2023 bounce back in “growth stocks” when inflations goes down and the FED eases. There is clearly a chance that this will happen and we will see periods of rapidly rising prices for “shitcos” but overall, I think one should be very cautious with these fallen Angels.

For the current Tech Favorites, I see three major issues:

1.) The “Blue Ocean” period is over. For some years, especially all the big companies like Google, Amazon, Microsoft,Apple, Meta and Co. could grow along each other without stepping on each others toes. This is now over. Apple kicking Meta into the kneecap with privacy settings was most likely only the start, more of these conflicts are to be expected. To me, many areas (especially advertising and E-Commerce) look like Red Oceans.

2.) Regulation will continue to increase. With increasing regulation, the former high growing tech companies will look more and more like Utilities or TelCos. Assuming that behemoths like Microsoft, Google or Apple will grow at 20% rates for many years is unrealistic.

3.) Tech business is peoples business.
For many tech businesses, the “story” is extremely important to justify the valuation, so Management, who is telling the story can command high and sometimes extrem salaries. The same goes for their Tech guys as well as other important people like Product guys etc. To me, many tech business look pretty simlar to investment banking businesses or other people businesses where to employees are able to extract the majority of the value creation one way or the other. Investors ignored this as they thought that “stock based compensation” is not an expense, but I guess at least some of them have learned that leason and this problem will not go away.

My own focus will remain on Energy, Energy efficiency, Decarbonisation. Electrification etc.  as these are very long running trends. In addtion, I think looking into the hard hit sectors in Europe for instance in the chemical industry could make sense. As in the previous years, I do think it is essential to keep an open mind and look for opportunities when they arise. Some financial companies for instance could also see better times.

For the long term, the inrease in the risk free rate of at least 300 bps over the last year has clearly increased the expected long term nominal return on stocks. The big question of course is, how persistent inflation will be and how real returns will look like. A lot of market participants seem to be super excited that they will receive positive interest rates going forward, however in terms of “real returns” the situation for fixed income investors is worse then ever.

In the mid to long term, the only protection against inflation are “real assets” and especially shares in businesses that can pass on cost increases.

As a Final goodie, below you’ll find a link to a song from Jimmy Cliff that I find quite fitting for 2022:

The harder they come, the harder they fall, one and all.